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U.S. Small Business Administration finalizes rule authorizing federal contracts to be set aside for women-owned small businesses

On 7 October 2010, the U.S. Small Business Administration (SBA) published a final rule that will allow federal contracts to be set aside for women-owned small businesses (WOSBs) in 83 industries in which women are underrepresented in the federal marketplace. 75 Fed. Reg. 62,258 (7 Oct. 2010) (codified in 13 C.F.R. Part 127). The new program will take effect on 4 February 2011, a full decade after it was first authorized by Congress. Although the new rule increases federal contracting opportunities for an estimated 12,000 eligible WOSBs, it also creates potential risk for these companies due to the eligibility, certification, and documentation requirements.

Background and summary of final rule

In 2000, the Small Business Reauthorization Act authorized the federal government to reserve contracts for WOSBs in industries where they were found to be underrepresented. Pub. L. No. 106-554 § 811 (2000) (codified at 15 U.S.C. § 637(m)). Efforts to launch the program languished, however, until a lawsuit by the Women's Chamber of Commerce forced the government to develop a plan under court order. In 2007, SBA proposed an initial rule implementing the WOSB program, but it was heavily criticized for adopting too narrow an approach, permitting set aside contracts for WOSBs in only four obscure industries and only if the agency certified that it had engaged in discrimination against WOSBs. The rule was withdrawn, and in March 2010, SBA issued a new proposed rule identifying 83 industries eligible for set-aside contracts to WOSBs, and eliminating the discrimination certification requirement. 75 Fed. Reg. 10,030 (4 Mar. 2010). Following a public comment period in which nearly 1,000 comments were received, virtually all supporting the proposed rule, SBA issued its final rule on 7 October 2010.

Under the new rule, contracting officers (COs) can restrict competition: (1) to economically disadvantaged WOSBs (EDWOSBs) in any one of 45 industries (or NAICS codes) in which WOSBs are underrepresented; or (2) to all WOSBs in any one of 38 industries in which WOSBs are substantially underrepresented. SBA plans to update the list of eligible industries as additional data becomes available, but there is no process to appeal NAICS codes that were excluded from set-aside opportunities in the final rule.

Prior to setting aside a contract for WOSBs or EDWOSBs, a CO must ensure that:

the anticipated contract price including options does not exceed $3 million, or $5 million if it is a manufacturing contract;

two or more WOSBs or EDWOSBs are reasonably expected to submit offers;

the contract can be awarded at a fair and reasonable price; and

each competing concern is certified as a WOSB or EDWOSB by a federal agency, a state government, or a national SBA-approved certifier, or has self-certified.

To qualify as a WOSB, a business must be at least 51% unconditionally and directly owned, controlled, and managed by one or more women who are U.S. citizens, and must qualify as small in its primary industry. An EDWOSB must, in addition, be at least 51% owned by one or more women who are "economically disadvantaged," which requires, in part, personal net worth under $750,000 and evidence of diminished capital and credit opportunities. SBA will also examine other financial indicators, and will presume a woman is not economically disadvantaged if her average adjusted gross income over the prior three years exceeds $350,000 or if the fair market value of all her assets is greater than $6 million.

As noted above, WOSBs have the burden of proving their eligibility for set-aside opportunities. As a result, at the time a business submits its offer for a set-aside contract, it must be registered in the Central Contractor Registration (CCR), have a current representation that it qualifies as a WOSB or EDWOSB posted on the Online Representations and Certifications Application (ORCA), and have provided a core set of eligibility documents to an online SBA document repository (i.e., WOSB Program Repository) that will be examined to confirm the business' eligibility and to avoid fraudulent representations. Companies that choose to get pre-certified as a WOSB or EDWOSB by a certifying entity approved by SBA can avoid providing the background documentation to the WOSB Program Repository. However, all WOSBs and EDWOSBs must update their WOSB certifications and ORCA representations as necessary, and at least annually, to ensure that they are kept current, accurate, and complete.

Client impact

Unlike any other set-aside program, Congress directed SBA to identify a limited set of NAICS codes that will be available for WOSB set-aside contracts based on underrepresentation (see list). Of the 83 industries identified, only EDWOSBs will be able to compete for set-aside contracts in NAICS codes typically associated with federal procurements (e.g., 5415 – Computer Systems Design and Related Services, 5416-Management, Scientific and Technical Consulting Services, and 5419 – Other Professional, Scientific and Technical Services). While there are several NAICS codes used in Federal procurements open to all WOSBs, limiting the scope of participation will likely lead to fewer set-aside opportunities for WOSBs. Similarly, unlike the 8(a), HUBZone, and Service Disabled Veteran Owned small business programs, WOSBs will not be eligible to receive sole source awards under this program, further limiting the impact of the program on WOSBs.

Similar to other SBA programs, contractors will have to properly document their status as WOSBs or EDWOSBs, and should be mindful of the eligibility, certification, and documentation requirements. For instance, if SBA is unable to verify a company's eligibility, the business must remove its WOSB or EDWOSB designation from CCR and ORCA and notify officials on pending procurements of the adverse determination, and COs may terminate any contract for which the business was found ineligible at the time of its initial offer. Further, if a business misrepresents its status it can be suspended or debarred, face civil liability under the False Claims Act and Program Fraud Civil Remedies Act, and be charged with criminal penalties under the Small Business Act and for making false statements under 18 U.S.C. § 1001. As part of the review process, WOSBs or EDWOSBs may be subject to "eligibility examinations" conducted by SBA to verify certifications made as to eligibility as WOSB or EDWOSB. In addition, interested parties may file protests challenging either 1) the size or 2) the status of a WOSB or EDWOSB in connection with the award of a WOSB or EDWOSB set-aside contract. The status protest must be filed separately and is subject to different protest procedures than a normal size protest.

Finally, the final rule encourages participation by non-WOSBs in WOSB set-aside opportunities. Specifically, non-WOSBs and WOSBs are permitted to form joint ventures to compete for the WOSB or EDWOSB set aside opportunities. Such partnerships are subject to specified limits – for example, at least 51% of profits must go to the WOSB in a joint venture and the limits on subcontracting and the non-manufacturer rule will apply to set asides received by WOSBs. In addition, joint ventures with WOSBs are still subject to SBA's affiliation regulations, unlike those formed under SBA's 8(a) program.

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